Burned by supply chain delays? Here is how you can respond

Supply chain delays have been a growing concern in recent years, with the COVID-19 pandemic amplifying the problem to an unprecedented level. The pandemic has caused widespread disruptions across various industries, decreasing productivity, and increasing business costs. For instance, the shortage of computer chips has had a domino effect on the automotive sector, causing a massive decline in production and lost sales.

One of the main drivers of supply chain delays is transportation bottlenecks, which can stem from issues such as port congestion, shortage of trucks and drivers, and delays at customs checkpoints. In addition, inventory shortages and manufacturing shutdowns also contribute to the problem, resulting in delays and disruptions in the supply chain. Moreover, unforeseen events such as natural disasters, pandemics, and geopolitical conflicts can significantly impact the supply chain and threaten global economic stability.

As per a survey conducted by EY (Ernst & Young) which was published in October 2021, the top three supply chain challenges mentioned were logistics and transportation (43%), raw materials and component shortages (42%), and supplier bankruptcy or financial instability (37%).

The Impact of supply chain delays on global economic recovery

The Impact of global supply chain delays is far-reaching, affecting businesses and individuals. Businesses risk losing sales and market share, harming their long-term growth prospects. For individuals, supply chain delays can result in delayed delivery of essential goods and services and higher prices due to supply shortages.

Furthermore, supply chain delays can severely affect the global economy, threatening recovery. They disrupt trade and investment flows, exacerbate inflation, and reduce consumer confidence, resulting in long-term economic repercussions. Developing countries that rely heavily on exports are particularly vulnerable, as supply chain disruptions can lead to financial imbalances and regional disparities.

A survey by Deloitte and the Manufacturers Alliance of more than 200 manufacturing executives very well justifies this, which found that shipping delays, parts shortages, and transportation delays had the most significant impact on production and profits in the past one and a half years or so. Respondents reported a negative effect on earnings of up to 13%. Rising shipping costs were the top operational concern, growing over 77% from January 2021 to August 2022 due to fuel and labor costs and logistics challenges.

Hence, it is important to address these supply chain disruptions to ensure the sustained growth of the global economy as a resilient supply chain mitigates the Impact of unforeseen events, prevents transportation bottlenecks, and improves overall efficiency. Therefore, businesses and national bodies must work in tandem to identify solutions that augment supply chain’s resilience like improved communication strategies, alternative sourcing options, and risk mitigation plans. Thus, by taking proactive measures, firms will be able to easily lower the risk of future supply chain disruptions and promote economic stability for all.

Supply chain delays and disruptions: Definition, severity levels, and industry impacts

Supply chain delays and disruptions refer to any unexpected event or situation that hinders the smooth flow of goods, services, or information between suppliers, manufacturers, distributors, and retailers. These disruptions can be caused by various factors such as natural disasters, labor strikes, transportation issues, political instability, or even a global pandemic like COVID-19.

The severity of a supply chain disruption can differ depending on the nature of the event and how long it lasts. However, there are generally three levels of severity:

Minor disruptions: These are relatively small issues that can be resolved quickly and have minimal Impact on the supply chain. For example, a delay in delivering a non-critical component may cause some minor delays in production, but the overall impact is limited.

Moderate disruptions are more significant and may take longer to resolve. They can cause production delays, increased costs, and a temporary reduction in supply. For example, a significant storm that shuts down a port for several days could disrupt the delivery of goods and cause a temporary shortage in supply.

Severe disruptions are the most profound and can have long-lasting effects on the supply chain. They result in a complete shutdown of production, a significant cost increase, and a prolonged reduction in supply. For instance, the pandemic caused widespread disruptions in the global supply chain, with factory closures, transportation restrictions, and labor shortages causing significant delays and shortages of essential goods.

Nevertheless, the effect of supply chain delays can vary based on the industry.

Here are some examples:

Food industry: Supply chain disruptions lead to dearth of certain foods, price increases, and reduced variety. For example, the 2020 COVID-19 pandemic caused global food supply chain disruptions, resulting in the depletion of certain goods and higher prices.

A global beverage company faced challenges due to lack of data leading to poor production planning, promotion performance & stock management. Adopted TradeEdge for a consumer-centric approach and achieved a 20% reduction in “stock out” instances and a 10% increase in case-fill rates, improving supply chain performance.

Download the case study for more information: https://www.edgeverve.com/tradeedge/visibility-collaboration-tradeedge-market-distributor/

Construction industry: Supply chain disruptions cause unnecessary delays in the delivery of building materials, thereby leading to ‘project delays’ and increased operational costs. For example, the 2021 global shortage of lumber engendered by a combination of factors such as increased demand and supply chain disruptions, caused a surge in prices, and many construction projects were delayed.

Fuel industry: Supply chain disruptions lead to fuel shortages, price increases, and transportation delays. Take for instance, the 2021 shutdown of the Colonial Pipeline due to a cyberattack caused widespread fuel shortages and price increases across the southeastern US.

In hindsight, supply chain disruptions can considerably impact businesses and consequently the consumers. Thus, being aware of the potential risks and having contingency plans in place can help mitigate the Impact of these disruptions.

What are the measures taken by companies to mitigate supply chain delays?

Here are the measures that companies can take to mitigate supply chain delays and disruptions, listed in bullet points:

Role of a responsive supply chain in mitigating delays

Primarily, a responsive supply chain is crucial in mitigating delays and disruptions in the supply chain. A responsive supply chain is one that can quickly respond to changes in demand, supply, and external events such as natural disasters, transportation disruptions, or geopolitical risks.

A responsive supply chain can achieve this by leveraging digital technologies such as real-time tracking and monitoring, predictive analytics, and automation to improve visibility and decision-making. By using these technologies, companies will be able to quickly identify potential disruptions and take proactive measures to mitigate the Impact on their supply chain operations. A survey by Ernst & Young suggests that 84% of companies plan to invest in digital technologies to improve supply chain visibility, agility, and resilience. Hence, the top digital technologies being considered include artificial intelligence (AI) and machine learning (47%) and the Internet of Things (IoT) (43%).

A responsive supply chain helps organizations manage inventory and production schedules better. By closely monitoring demand patterns and adjusting production schedules accordingly, the companies can easily avoid overstocking or understocking, that leads to delays and inefficiencies.

Furthermore, a responsive supply chain can expedite alliance and communication across stakeholders within the supply chain network. By establishing solid relationships with suppliers, customers, logistics providers, and other partners, companies can improve communication and coordination, which can help mitigate risks and disruptions.

So, a responsive supply chain can help companies quickly respond to changing market conditions and mitigate the Impact of delays and disruptions in the supply chain. By adopting a proactive and flexible approach, companies can improve supply chain resilience, reduce costs, and enhance customer satisfaction.

Efficient Vs. Responsive supply chains – which is better in the current scenario

Both efficient and responsive supply chains have benefits and drawbacks, and choosing between them depends on the company’s specific needs and priorities.

An efficient supply chain reduces the costs and simplifies operations by streamlining processes, reducing waste, and maximizing resource utilization. So, this model works well for firms with stable demand trends, predictable supply chains, and a strong focus on cost reduction.

On the contrary, a responsive supply chain is built to respond quickly to changes in demand, supply, and external events. Thus, this tactic works well for companies that function in fast-changing markets with uncertain demand patterns, complicated supply chains, and high levels of risk.

In the present scenario, where supply chain disruptions have become more frequent and unpredictable, a responsive supply chain may be better suited to nullify these challenges. The COVID-19 pandemic, for instance, has justified the significance of supply chain resilience and flexibility, and organizations that have adopted a responsive approach have been better able to cope with the disruption.

However, this does not mean that an efficient supply chain is irrelevant. On the contrary, companies with a strong target on cost reduction, stable demand patterns, and a predictable supply chain can still gain from an efficient supply chain approach.

Basically, the choice between an efficient and responsive supply chain depends on a company’s specific needs, priorities, and the nature of its supply chain operations. In the current scenario, where supply chain disruptions are more frequent and unpredictable, a responsive supply chain may be better suited to manage these challenges.

Seven strategies to build a responsive supply chain

Here are some of the strategies that companies can use to build a responsive supply chain.

Here’s a more comprehensive illustration of each:

Communicate with your suppliers: Regular communication with suppliers is essential to maintain visibility into their operations and to identify potential disruptions. Companies should establish clear lines of communication with their suppliers, set expectations for information sharing, and develop contingency plans for managing disruptions.

Review your contracts: Organizations should review their contracts with suppliers to ensure they contain provisions that enable them to respond to changes in demand, supply, and external events. For example, contracts must include clauses allowing changes in order volumes, delivery schedules, and pricing.

Plan ahead: Companies should plan and anticipate the potential supply chain disruptions with the solutions ready. They should develop contingency plans that include alternative sources of supply, buffer stocks, and backup logistics routes.

Explore alternative suppliers: Organizations should find suppliers that can provide similar products or services to their current suppliers. This can help reduce dependence on a single supplier and mitigate the Impact of disruptions.

Be flexible: Companies should be flexible and able to quickly adjust their operations to the transposing market conditions. This may involve changes to production schedules, inventory levels, and logistics routes.

Keep your customers informed: Companies should maintain open lines of communication with them and keep them informed about potential disruptions and any changes to order fulfillment schedules.

Use data to navigate disruption’s challenges: Companies should leverage data analytics to gain insights into their supply chain operations and identify potential disruptions. This can include real-time tracking and monitoring tools to monitor supply chain performance and identify potential bottlenecks.

Hence, these strategies can help companies build a more responsive supply chain and improve their ability to manage disruptions and maintain continuity of operations.

Final thoughts

In today’s complex and unpredictable business environment, supply chain disruptions are becoming more frequent and costly. As such, companies need to be prepared to respond quickly and effectively to these challenges to maintain continuity of operations and customer satisfaction. To answer, companies can take several steps, including communicating with suppliers, reviewing contracts, planning, exploring alternative suppliers, being flexible, keeping customers informed, and using data to navigate disruption’s challenges.

Moreover, companies should consider adopting an efficient and responsive supply chain approach. While an efficient supply chain to prevent future disruptions focuses on minimizing costs and optimizing operations, a responsive supply chain is designed to respond quickly to demand, supply, and external events. Regardless of their chosen approach, having a clear and robust supply chain strategy can help companies build resilience and navigate disruption challenges more effectively.